Tag archives for “Strike & Techel”

End of 2018 Update: Direct To Consumer Wine Shipments

We last covered winery and retailer direct to consumer (“DTC”) wine shipments on this blog one year ago. (For those prior posts, see the following links: winery DTC shipping, retailer  DTC shipping.) This blog post summarizes the changes that occurred in 2018 with respect to winery and retailer DTC wine shipping. Winery DTC Wine Shipping – Beginning on October 1, 2018, Oklahoma’s new law allowing wineries to ship wine directly to Oklahoma consumers became effective. Retailer DTC Wine Shipping – There were no final changes in 2018 with respect to retailer DTC wine shipping; however, there are potentially some changes on the horizon. In August, the Florida Division of Alcoholic Beverages and Tobacco issued a Declaratory Ruling holding that it was enjoined by a prior court order from enforcing the laws prohibiting out-of-state retailers from selling wine into Florida. However, this ruling has been appealed, and thus may be reversed. Further, in September, a federal district court held that Michigan’s prohibition against out-of-state retailer wine shipping was unconstitutional. However, the Michigan litigation is stayed pending the outcome of a case in front of the U.S. Supreme Court, which is set for hearing on January 16, 2019. There is also similar litigation pending relating to Illinois’ and Missouri’s prohibitions against out-of-state retailer wine shipments, and accordingly there is the potential for future changes in these states as well. If you have any questions about direct to consumer shipments of alcohol, contact one of the attorneys at Strike & Techel.

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Strike & Techel Welcomes Melani Johns as a Partner

The partners at Strike & Techel are pleased to announce Melani Johns’ advancement to Partner in the firm!  Melani joined the firm as an associate in 2015 after practicing litigation and then founding a small firm that focused on providing legal services to businesses in the hospitality industry. Upon joining Strike & Techel, Melani quickly took over management of the alcohol licensing practice and has become an integral part of the firm’s growing alcohol-regulatory mergers and acquisitions team. While making partner at Strike & Techel is her dream gig, it’s probably not nearly as cool as the time when she spent a winter “working” as mountain security at a ski resort. If you have questions about the areas in which she practices, or regarding current snow conditions, she’s probably got the answers.

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The Importance of TTB Updates: Officers, Directors and Shareholders – Oh My!

  There have been some recent developments at the Alcohol Tobacco Tax & Trade Bureau (“TTB”) regarding filing corporate updates that may affect your federal licensing as an importer, producer or wholesaler of alcoholic beverages. When you receive an approval letter for a TTB permit, you’ll receive information regarding the ongoing requirement to report changes in name, address, ownership, management or control after the original qualification of your business. Perhaps someone on your board of directors is new, or there’s a new 10% or greater shareholder in your company, or an officer leaves, or new officers are appointed; all of these changes must be reviewed by the right folks in your organization to determine if it triggers corporate updates with both the TTB and state authorities where you hold licenses. We’ve blogged about the importance of staying up to date on your license applications with the TTB in the past, but we’ve just been reminded why keeping up with these compliance requirements is so important. Recently, the TTB announced enforcement against an Illinois wholesaler for not updating its TTB permits to report changes in ownership and control within the required timeline (in this instance, 30 days). See the TTB press release here. The Illinois wholesaler in question had not updated its ownership information with the TTB in a significant period of time, and the TTB ruled that the wholesaler was therefore operating without a valid permit, which is a criminal offense under 27 U.S.C. § 207. Although the Illinois wholesaler was engaged in other, more problematic behavior (paying slotting fees to a retailer), the citation of the unreported permit changes does indicate a potential shift in TTB enforcement priorities. Accordingly, we recommend that all businesses keep their TTB permits up-to-date within the required deadlines, and, where required, file applications or amendments in advance of such changes. A change in proprietorship typically requires TTB preapproval of the new entity before closing a transaction, while a change in control typically triggers a post-closing notification to TTB. Other changes that may require updates with the TTB include changes to trade names, changes to business names, extensions or curtailments of the premises, changes to any alternation of premises or proprietor, or adding or removing non-contiguous storage locations. The TTB website also features more specific guidance on required updates for wineries, breweries, distilled spirits  plants, and wholesalers/importers If you have any questions about report updates or licensing, please contact one of the attorneys at Strike & Techel.

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South Carolina Off-Premises Retail Caps, Part II

Last year, we covered the South Carolina Supreme Court case that ruled the state’s prohibition against an entity holding more than three off-premises retail liquor licenses was unconstitutional. The court held that the South Carolina law was enacted to protect small retailers, and that economic protectionism was not a sufficient justification for the law. Read our previous blog on that March 2017 decision in Total Wine v. South Carolina DOR here. The South Carolina legislature recently passed a law that reenacts limits on the number of off-premises retail liquor licenses that an entity may hold. Act 147 was signed by the South Carolina Governor in April, and it went into effect immediately. In an attempt to distinguish the Act from the law previously ruled unconstitutional by the South Carolina Supreme Court, the legislature listed a variety of health and safety policy arguments in favor of the legislation, in addition to the economic goals of spurring competition and reducing monopolization of the alcohol market. The legislature asserted that harms related to excessive alcohol consumption are tied to liquor retailer density, and cited statistics involving alcohol-related deaths, traffic fatalities, as well as binge drinking rates. The new law, S.C. Code § 61- 6-141, provides that an entity may only obtain three off-premises retail liquor licenses in the state. However, an entity may obtain three additional off-premises retail liquor licenses, if the new retail liquor licenses are obtained in counties with more than 250,000 residents. Furthermore, an entity seeking any of the three additional off-premises retail liquor licenses may not operate more than two stores in a county with more than 250,000 residents. However, if the entity already operated three off-premises retail liquor licenses in a county with more than 250,000 residents as of March 21, 2018, then the entity may obtain two additional off-premises retail liquor licenses to operate in that county. Currently, only seven counties have a population larger than 250,000 residents.  The issuance of the three additional off-premises retail liquor licenses is staggered under the new law. Entities may obtain only one additional license between now and May 31, 2020, a second additional license between June 1, 2020 and May 31, 2022, and the third additional license will not be available until June 1, 2022. If you have any questions about retail liquor licensing or chain limitations, contact one of the attorneys at Strike & Techel.

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Federal Excise Tax Reform Updates: Imports and Wine Transferred In Bond

The Alcohol and Tobacco Tax and Trade Bureau (“TTB”) has issued a revised industry circular regarding the alternate procedure for wineries to claim the excise tax credit on wines that are stored at a bonded wine cellar or bonded winery. Per Industry Circular 2018-1A, that alternate procedure is now available through December 31, 2019, rather than expiring on June 30th as originally determined. Thus, the alternate procedure is available for the entire term of the federal excise tax revisions, which are set to expire on December 31, 2019, although industry groups are working to get the excise tax revisions extended. Furthermore, the alternate procedure is available for wines stored untaxpaid at a bonded winery as well as at a bonded wine cellar. The prior industry circular had only specified bonded wine cellars. For more information on the excise tax changes, production requirements, and the alternate procedure relating to claiming the excise tax credit, we have previously blogged on these subjects here and here. Those following our blog will be aware that the tax changes that took effect in January apply to beverage alcohol products produced outside of the United States, as well as domestic production. Having said that, it is still not possible to claim the tax credit for wine, or the reduced beer and distilled spirits tax rates, for products coming into the US from overseas. The TTB issued preliminary guidance through its FAQ page back in February that it was working with Customs and Border Protection to establish procedures and issue guidance for importers. Based on recent public statements from TTB, we expect those procedures and guidance to issue in June. Until then, imported products continue to be subject to tax payment at the full excise tax rates for each product category. Once the new procedures take effect, importers will be eligible to claim retroactive credits and lower tax rates for products brought in since January 1st of this year. If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.

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Florida Clarifies Permissibility of Delivery by Third Party Providers

Earlier this month, Florida House Bill 667 was passed and signed into law (effective July 1, 2018), which clarifies and expands delivery and third party provider rules for Florida retailers (known as “vendors” under Florida law). The bill amends Florida Statute § 561.57 to clarify that vendors can take orders online, and delivery can be made by a vendor in its own vehicle “or in a third-party vehicle pursuant to a contract with a third party with whom the vendor has contracted to make deliveries, including, but not limited to, common carriers.”. This amendment clarifies prior ambiguity over whether third party providers can deliver alcoholic beverages on behalf of vendors. The new law thus should provide comfort to both vendors and third party providers that third party providers can deliver in their own vehicles if they have an agreement with the vendor that makes the sale. Delivery vehicles are subject to search by law enforcement or employees of the Division of Alcoholic Beverages and Tobacco without a warrant to ensure compliance with the law. The new law makes a couple of additional changes relating to delivery. It expressly prohibits brewpubs (i.e., a Florida manufacturer with a vendor license under Florida Statute § 561.221(2)) from delivering alcoholic beverages. And, a new section was added to § 561.57 which requires that proof of identification must be produced by the customer and checked by the delivery person upon delivery. If you have any questions about delivery or third party providers, contact one of the attorneys at Strike & Techel for guidance.

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It’s a Chemical World – California’s Prop 65 List Expands Again, Plus Developments on BPA

California’s Prop 65 (officially the Safe Drinking Water and Toxic Enforcement Act of 1986) requires businesses in the state to inform Californians about exposure to chemicals identified by the state as causing cancer or reproductive toxicity. Inconveniently, though the obligation is on the producer of the product  to ensure that the consumer is warned, it is the retailer that must display a notice sign at the point of sale to comply with the law. The Act provides for reimbursement of attorney fees to claimants who bring suit based on missing  notice signs, leading to watchdog lawsuits calling out different consumer goods producers. To address the responsibilities of alcoholic beverage suppliers, whose products often include a number of chemicals from the list, three key trade bodies, the Beer Institute, the Wine Institute, and the Distilled Spirits Council, set up the Prop 65 Sign Management Company in 2014.  This group distributes signs to retail licensees free of charge, on behalf of all members of the alcohol industry. These signs generally indicate that the consumption of alcoholic beverages may expose drinkers to Prop 65 chemicals, but do not name specific chemicals. This means that when new chemicals are added to the list, such as the impending August 2018 addition of a common ingredient in caramel color, the signs do not need to change. One of the main aspects of Prop 65 is that chemicals are added to the list if the State of California identifies them as potentially harmful. This means that the California list does not always correlate with guidance from other regulators. As an example, in 2015, the state added Bisphenol A (BPA) to the Prop 65  list of chemicals, for warning to be provided where it is “intentionally added” (which can include where it is present in materials that consumer goods are exposed to – BPA is a common ingredient in linings of lids and beverage cans, and is often used in equipment such as hoses at production facilities). Although the regular Prop 65 warning doesn’t have specific language, in the case of BPA, California created emergency regulations in 2016 with a special safe harbor warning notice. That regulation ran out in January, meaning that sign is no longer mandatory until the regular regulations take effect in August, but it is recommended by trade bodies to keep distributing it in the interim. Prop 65 Sign Management Company distributes a safe harbor warning, but only on behalf of identified suppliers (who are encouraged to add their affected products directly at the site).  The Food & Drug Administration (FDA) allows the use of BPA, and opposed California’s addition of BPA to the list in 2015, indicating the FDA’s research did not indicate it caused reproductive toxicity. A draft report released by the National Toxicology Program (NTP) this month also found only minimal effects on persons exposed to BPA. On the other hand, a new Regulation passed by the European Commission (EU 2018/213) in February introduces stricter measures for BPA use in food contact materials in Europe from September this year, and the European Food Safety Authority (EFSA) is re-evaluating its  impact after it originally cleared its use in 2015, in the face of many health bodies calling for a complete ban on its use. Despite the differences of opinion among regulatory agencies, both in the US and abroad, BPA remains on the Prop 65 list and suppliers whose products or packaging are exposed to BPA are subject to the California signage requirements. Any businesses selling alcoholic beverages in California should be aware of the impact of Prop 65 on their activity. If you have any questions, contact one of the attorneys at Strike & Techel.

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Federal Excise Tax Reform Update: More on Beer and Wine Production Requirements

Back in December, we wrote about the new Tax Cuts and Jobs Act of 2017 (the “Act”) and the 2018-2019 excise tax reform for the alcoholic beverage industry. The TTB has since issued additional guidance on the changes to federal excise taxes, including more information on the production requirements for beer and wine to be eligible for reduced excise taxes. Wine: To be eligible for the new wine excise tax credit, the wine must have been produced by the winery claiming the tax credit. The TTB’s guidance states that in addition to fermentation, the following activities constitute “production” for purposes of claiming the new tax credit:

  1. Sweetening (adding sweetening material)
  2. Addition of wine spirits (adding brandy or other authorized wine spirits)
  3. Amelioration (adding water or sugar to adjust acidity)
  4. Production of formula wine (wines with added flavoring or treating materials that require formula approval)
The TTB’s recent guidance also states that activities listed in 24 C.F.R. § 24.278(e) will constitute “production” for the purposes of claiming the new tax credit, but only fermentation and the four activities listed above are specifically listed in the TTB guidance. It is unclear whether the production of sparkling wine constitutes “production” for the purposes of claiming the new tax credit, as that activity is listed in 24 C.F.R. § 24.278(e), but is not listed in the TTB’s recent guidance on this topic. The activities above must be undertaken “in good faith in the ordinary course of production, and not solely for the purpose of obtaining a tax credit.” The entire volume of wine that has undergone one of these production activities would be considered “produced” for purposes of applying the new tax credit. Blending that does not involve one of the operations listed above is not considered production. It is common practice for wineries to store untaxpaid wine under bond at a bonded wine cellar (“BWC”). Under the “small producer tax credit” in effect prior to 2018, a winery was able to “transfer” its tax credit with the wine to a BWC, and the tax credit could be claimed when the wine was removed from bond at the BWC. Under the excise tax changes in effect for 2018 and 2019, because a BWC has not “produced” the wines by one of the methods above, the BWC may not claim the excise tax credit on wines removed from its bond. The TTB recognizes that wineries may need time to change operations in order to take advantage of the 2018-2019 wine tax credits. Accordingly, Industry Circular 2018-1 sets out an alternate procedure for wineries to claim the excise tax credit on wines stored at a BWC through June 30, 2018. This alternate procedure enables a winery to “receive” its untaxpaid wine back in bond from the BWC, and then “remove” it taxpaid by invoicing it back to the BWC. The process is completed entirely on paper, and does not require a winery to physically receive the wine and re-transport it back to the BWC. This alternate procedure is only available for a limited time, and thus wine producers should review their off-site untaxpaid wine storage and plan to coordinate the documentation to take advantage of the new tax credits while they can. Beer: There is also a production requirement for beer in order to be eligible for the new reduced tax rates. The recent TTB guidance provides that, in addition to fermentation, the act of “addi[ng] water or other liquids during any stage of production” constitutes “production” for purposes of claiming the reduced tax rates, if the activity is “undertaken in good faith in the ordinary course of production, and not solely for the purpose of obtaining a tax credit.” The TTB confirmed that simply bottling or blending beer does not constitute “production.” Further, the TTB confirmed that, like wine, the reduced excise tax for beer cannot be “transferred” with beer transferred in bond. However, unlike wine, there is no alternate procedure for obtaining the reduced tax credit via documentation on beer that has already been transferred to another brewery under bond. There are still some outstanding questions regarding the excise tax changes on which the TTB has not yet issued guidance, including how the excise tax reform applies to imported products, as well as when two or more producers will be considered to be a controlled group or a single taxpayer. If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.

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Balancing the First Amendment and the Three Tier System – The Retail Digital Network Case

Summary: After a January 2016 Ninth Circuit decision, there was a big question mark in California over whether the state could justify its laws creating and protecting the three tier system. The decision raised a real issue over whether the First Amendment right to free speech might triumph over three tier laws preventing supplier-paid advertisements in retail stores. In January 2016, no position was taken by the court on whether the law was justified, but the language of the opinion strongly suggested that the court had doubts that it could be. A June 2017 decision lays that question to rest, and affirms California’s right to legislate to prohibit suppliers from paying retailers for advertising, based on its powers under the Twenty-First Amendment, and thus issuing a strong reinforcement of the validity of the three tier system and the laws that maintain it. Detail: On June 14, the Ninth Circuit handed down a ten-to-one en banc decision, rejecting a First Amendment challenge to California’s law preventing suppliers from paying for advertising on licensed retail premises (Retail Digital Network v. Prieto, No. 13-56069). The plaintiff/appellant, Retail Digital Network, LLC (“RDN”), operates a business supplying digital screen displays to retailers across California, most of which are licensed to sell alcoholic beverages. The screens show short advertisements for various different consumer products, and the income received by RDN from those advertisers is shared with the host retail store. Frustrated at their difficulty in selling advertising slots to alcoholic beverage suppliers, RDN brought an action against the California Department of Alcoholic Beverage Control (ABC), in the U.S. District Court for California, asking the Court to find the law stopping suppliers from paying for ads on their screens unconstitutional. In order to succeed in the case, RDN had to overcome a thirty year old decision by the Ninth Circuit in a very similar case, where the company in question sold ads on shopping carts used in retail stores (Actmedia, Inc. v. Stroh, 830 F. 2d. 957 (9th Cir. 1986)) (“Stroh”). The same statute at issue in the RDN case, which prevents anything of value from being provided by a supplier or wholesaler to a retailer in return for advertising, had been challenged in that case, based on the same argument that it infringed the advertiser’s First Amendment right to free speech (the statute in question is California Business & Professions Code §25503(f)-(h)). Back in 1986, the Ninth Circuit concluded that the state’s right to regulate the commercialization of liquor pursuant to the Twenty-First Amendment, and, in particular, to legislate to achieve goals like the promotion of temperance and protection of the three tier system, provided sufficient justifications to uphold the constitutionality of the law. The court used the recognized, four-part, intermediate scrutiny test for analyzing content-based restrictions on non-misleading commercial speech, known as the “Central Hudson” test (based on the Supreme Court’s decision in Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980)). In order to get around the Stroh precedent, RDN argued in its claim that an intervening 2011 Supreme Court decision had changed the Central Hudson test for a First Amendment commercial speech review, creating a more demanding level of Court scrutiny over legislative restrictions on such speech, referred to as “heightened” scrutiny (Sorrell v. IMS Health Inc., 564 U.S. 552 (2011)) (“Sorrell”). After receipt of RDN’s claim, the ABC filed for, and was granted, summary judgment on the basis that the Stroh precedent was not irreconcilable with Sorrell. RDN appealed to the Ninth Circuit, where three judges agreed that Sorrell had changed the level of scrutiny to be applied to limits on speech, and remanded the case to the District Court to hear more evidence on the reasons asserted by the state to justify the law. The District Court was directed by the Ninth Circuit to apply heightened rather than intermediate review to those reasons, on the basis of the decision in Sorrell. In addition to reversing the decision, the Ninth Circuit also took time to point out some concerns for the District Court to consider on remand, in its assessment of whether the ABC could legitimately raise any justification for the law, in part because of the large number of special interest exceptions created by the Legislature over the years. When the initial Ninth Circuit decision was handed down in January 2016, it generated a huge industry response, with many concerns raised over its implied challenge to the integrity of the three tier foundational protections. In a highly unusual circumstance, the Ninth Circuit agreed to a rehearing of the case with eleven judges en banc, which hearing took place in January this year. In the decision issued in June, the Ninth Circuit reversed its own January 2016 ruling, with ten judges confirming the original District Court summary judgment ruling, and one judge dissenting. Of the three judges who originally heard the case in the Ninth Circuit, only Chief Judge Thomas was part of the bench for rehearing, and he was the lone dissent. The court reviewed and essentially reaffirmed its decision in Stroh, and the applicability of the Central Hudson intermediate scrutiny test. The Ninth Circuit majority confirmed that the law in question was as narrowly drawn as possible to serve the state’s important goal of protecting the three tier system, by preventing possible illegal payoffs from suppliers to retailers, disguised as advertising payments, and by preventing suppliers and wholesalers from exerting undue influence over retailers. They diverged from Stroh only to state that they did not endorse the state’s other listed goal of promoting temperance by limiting point of purchase advertising, as being a legitimate justification for the law. The argument raised by RDN, and referred to in the initial Ninth Circuit decision, that the special interest exceptions undermine the purpose of the tied house law, was rejected by the court on the basis that they only affect a small minority of licensed retailers, and have a minimal effect on the entire regulatory scheme. The majority’s decision leaves little question remaining as to the validity of the three tier system, and its legislative and regulatory protections in California. If you have any questions about your alcohol business’ advertising practices or its relationships with retailers, contact one of the attorneys at Strike & Techel.

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Alcohol Advertising 101

With news last week that the NFL will now be allowing distilled spirits suppliers to advertise during televised football games, it is a good time for a reminder about some of the special issues that come up when advertising alcohol. Under federal law, there are several rules that regulate the advertising of alcohol by suppliers. The main one is that advertisements must include mandatory information about the responsible advertiser and about the product. If a supplier is advertising all of its brands, the only information needed is the advertiser’s name and address, as approved on its federal permit. If a single brand is being advertised, its class and type must appear, and a distilled spirits ad must also show the alcohol content of the product, and the percent and type of any neutral spirits it contains. The federal laws, and many state laws, also have general restrictions around legibility, comparative advertising, and around certain prohibited statements, including, for example, health claims or obscene or indecent statements. Advertising laws prevent the use of a supplier advertisement to provide something of value to a retail licensee, e.g., by giving information about retailers other than a basic mention of where to find the supplier’s products, including at least two, unaffiliated retailers. Suppliers and retailers cannot cooperate or share in the costs of advertising. At the state and local level, other concerns include things like the direct mailing or televising of alcohol advertisements, and advertising of pricing or discounting on products. A number of states require alcohol ads to be preapproved by the regulators there before they can be published. Many states will not allow any listing or mention of retailers in advertisements unless all known retailers of the product are mentioned. It is important to be aware of what exactly constitutes an advertisement. Don’t forget that social media posts by a brand are also subject to advertising rules. Third party posts by influencers and others are also ads, and are subject to Federal Trade Commission guidelines on making sure that readers know that the placement of the brand’s name was paid for. The same goes for sweepstakes and other competitions run by brands, where it must be clear in the post that a consumer has been incentivized to post content on their own social media pages in return for a chance to win a prize. The FTC recently sent letters to dozens of brands and influencers, warning that “material connections” between influencers and brands must be disclosed in social media posts promoting the brands. This suggests that the FTC is focused on the issue and could take enforcement action against companies that fail to comply. Each of the major supplier industry trade groups (Beer Institute, Wine Institute, and the Distilled Spirits Council) maintain voluntary compliance guidelines for advertising in the alcohol industry. These guides contain recommendations related to making sure that target audiences are over 21, that actors appear to be well over 21, and which recommend limiting certain content, for example, ads that encourage overconsumption or suggest that drinking leads to sporting or other success. The guides are extremely useful reading for all industry members, even if they are not members of the association in question. If you are looking for specific guidance on alcohol advertising, contact one of the attorneys at Strike & Techel.

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Off-Premise Retail Caps - Are They Constitutional?

A South Carolina law preventing an entity from holding an interest in more than three off-premise retail liquor licenses was deemed unconstitutional earlier this year. The South Carolina Supreme Court accepted an argument by Total Wines & More that the state’s cap on liquor stores had no legitimate basis. Numerous bills had been filed with the state legislature over recent years to have the cap overturned, but without success. The Supreme Court majority, however, found that the state had not offered a persuasive argument on why the restriction was a proper use of its general police power. The only justification provided by the state in the case was that the law was designed to support small businesses, and preserve the right of small, independent liquor dealers to do business, which the court identified as simple economic protectionism. A number of other states have caps on ownership of retail off-premise liquor licenses, particularly across the Northeast. Similar laws have survived constitutional challenges in states like New Jersey, New Hampshire, and Massachusetts. In these states, justifications for these laws have included reasons such as intensifying the dangers of liquor sales stimulation through retail concentration, preventing monopolies, avoiding indiscriminate price-cutting and excessive advertising, and discouraging absentee ownership. The success of the suit in South Carolina is likely to encourage a new wave of challenges to these laws, as the chain stores focus more efforts on expansion of their model in the region. The ongoing legislative and judicial dispute between Total Wine & More and the State of Connecticut, for example, on the statutory minimum pricing restrictions there, follows a similar path of seeking to open up a market more friendly to chain store liquor retail. Since the decision was handed down on March 29, the South Carolina Senate has already approved a move to legislate around it, by passing an amendment to the state budget. The change would delay the implementation of the court’s decision for a year, and would require an applicant for a fourth store to pay the equivalent of a year’s gross sales from one of its current stores before it could get the new license. The amendment now passes to the General Assembly for consideration. In the interim, the state has publicly said that they are accepting liquor store applications in light of the new ruling. It goes without saying that the elimination of the retail cap in South Carolina is likely to significantly alter the retail liquor landscape there, and that other similar decisions in other states would affect the retail market nationwide. If you want more information on retail liquor licensing, please contact one of the attorneys at Strike & Techel.

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Michigan Relaxes Labeling and Shipping Requirements for Direct-to-Consumer Wine Shipments

Recently, we posted about Michigan Senate Bill 1088 here (“SB 1088”), which expands the delivery privileges of in-state retailers, and which authorizes third party providers and common carriers to assist with shipping and delivery on behalf of in-state retailers, subject to certain limitations. SB 1088 also amends Michigan’s winery direct-to-consumer shipping law, Mich. Comp. Laws § 436.1203(4). The revisions relax the labeling and packaging requirements for direct winery shipments, which will be welcome news to direct winery shippers as the Michigan Liquor Control Commission (“MLCC”) has actively enforced these labeling and packaging requirements in recent years. As of March 29, 2017, wineries no longer need to include their direct shipper license number or the order number on the outside label of each package shipped into Michigan. Direct shippers will still be required to label the top panel of the shipping package with the name and address of the individual placing the order and the name of the designated recipient, if different from the person placing the order. The outside label must also state “Contains Alcohol. Must be delivered to a person 21 years of age or older.” Inside each package to be shipped, the invoice or packing slip is no longer required to list the Michigan wine label registration number of approval for each wine shipped, although wineries will still be required to register their wine labels with the MLCC. SB 1088 also establishes new rules for common carriers. Common carriers acting on behalf of winery direct shipper licensees are subject to new recordkeeping and reporting requirements, as detailed in our prior post regarding SB 1088. If your winery is in need of assistance regarding direct shipping laws, contact one of the attorneys at Strike & Techel.

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Michigan Senate Bill 1088: New Rules on Shipping & Delivery for Retailers and Third Party Providers

On January 9, 2017, Michigan Governor Rick Snyder signed Senate Bill 1088 (“SB 1088”) into law, which revises Mich. Comp. Laws § 436.1203. SB 1088 amends direct-to-consumer shipping laws for wineries and retailers, but most notably expands in-state retailer privileges to ship and deliver wine and beer – and in some cases spirits – directly to consumers in the state of Michigan. This post will focus on the changes SB 1088 makes with respect to retail shipping and delivery and use of third party providers (“TPPs”) and common carriers. The law takes effect on March 29, 2017. Retailer Shipping and Delivery Prior to SB 1088, retailer shipping and delivery options were limited. Only retailers in Michigan that held Specially Designated Merchant (“SDM”) licenses were allowed to deliver beer and wine to Michigan consumers, provided the delivery was made by the retailer’s employee. SB 1088 allows several additional methods of retailer shipping and delivery. Shipment by common carrier and use of a TPP are now permissible in some circumstances. Additionally, Specially Designated Distributor (“SDD”) retail licensees may also now deliver spirits to Michigan consumers. Once SB 1088 goes into effect, the following retail shipping and delivery methods will be permissible:

Retailer Shipping and Delivery
Third Party Providers As explained above, SB 1088 allows in-state SDM and SDD retailers to use third-party providers to facilitate sales and delivery to Michigan consumers. The law allows a “third party facilitator service” (or, TPP) to facilitate sales and delivery to consumers by means of the internet or a mobile application. SB 1088 requires a TPP to obtain a “third party facilitator service license” from the Michigan Liquor Control Commission (“MLCC”), and imposes recordkeeping and reporting requirements. Once licensed, a TPP may make deliveries of beer and wine on behalf of a SDM retailer, or spirits on behalf of a SDD retailer. Interestingly, SB 1088 provides that a violation by a licensed TPP will not be considered a violation of the retailer (whereas in most states the violation will be imputed to the retailer). It appears that the new TPP license will be considered a relative to a retail license, as SB 1088 contains tied house restrictions prohibiting manufacturers, suppliers, and wholesalers from directly or indirectly having any interest in a TPP licensee and from aiding or assisting a TPP licensee with anything of value. TPPs must also offer their services to all brands of each retailer without discrimination. Common Carriers SB 1088 also permits common carriers to deliver wine on behalf of SDM retailers. There is no license requirement, but SB 1088 requires common carriers to keep records of deliveries and file quarterly reports with the MLCC. The reports, records, and supporting documents must be kept for three years, and must include: (1) the name and address of the person shipping the product; (2) the name and address of the person receiving the product; (3) the weight of the alcoholic beverages delivered; and (4) the date of delivery. For more information about the recent changes to Michigan law, contact one of the attorneys at Strike & Techel.

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Strike & Techel Welcomes Tom Kerr as a Partner.

The partners at Strike & Techel are pleased to announce the elevation of Tom Kerr from Senior Associate to Partner in the firm! Tom spent his first few years after law school practicing commercial litigation, but once he joined Strike & Techel in 2011, he quickly realized alcohol law was much more fun. Tom’s diverse practice includes advising supplier and retailer clients on trade practice issues, distribution, promotions, advertising, marketing, and tied-house issues. Tom has particular expertise in ecommerce and he advises many third party providers and others on emerging industry practices. If you have questions in these areas, or regarding foreign travel, the Denver Broncos, or Star Wars, Tom’s probably got the answers. To learn more about Tom and Strike & Techel, visit us at www.alcohol.law.

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Governor Cuomo Vetoes Empire Wine Bill (Again)

On November 4, 2016, New York Governor Andrew Cuomo vetoed Assembly Bill 10248 (AB 10248). This is the second time in two years that Governor Cuomo has vetoed a bill seeking to amend the state’s alcohol laws to clarify the basis upon which the New York State Liquor Authority (SLA) can revoke, suspend or cancel a license or permit.  AB 10248 would have prevented the SLA from taking disciplinary action against licensees for violations of other states’ alcoholic beverage laws unless the alleged violation independently violated a provision of NY law, or the other state had determined that a violation had occurred after providing the accused with full due process of law; the SLA could not take action based on a mere allegation of a violation in another state. AB 10248 would have specifically permitted the SLA to take action against licensees for knowingly making alcohol sales to minors or failing to pay taxes in other states, but presumably the other state still would have had to prove liability before the SLA could act.  AB 10248 stems from the SLA’s ongoing battle with Empire Wine. In 2014, the SLA alleged that Empire Wine was violating other states’ laws by direct shipping wine to consumers in a number of states that prohibit direct shipping by out-of-state retailers. In Governor Cuomo’s veto memo, he reasoned that the veto ensured that licensees would abide by New York’s alcohol laws and prevent a “regulatory gap” in which retailers could violate other states’ laws without repercussions in New York.

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World’s Best Alcohol Law Blog Gets New Name!

Our regular readers will notice that our blog has a new name: Alcohol.law Digest. We’ve been posting topical information about the legalities of the alcoholic beverage industry on our Imbibe-Blog (aka Imbiblog) webpage for six years and we felt like it was time for a change. Going forward, we’ll continue posting about the topics we think will be interesting and important to our readers, but we’ll do it under a name everyone can pronounce! Farewell Imbiblog (or is it Im-BEE-blog?) and welcome Alcohol.law Digest!

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Governor Brown Signs Three New Alcoholic Beverage Laws

On Wednesday, September 28, 2016, Governor Brown signed three alcohol-related bills into law, creating new on-sale restaurant licenses for San Francisco, legalizing the glass of bubbly you have with your haircut and criminalizing powdered alcohol. All three laws become effective on January 1, 2017. SB 1285 - 5 New Restricted Restaurant Licenses for San Francisco Senate Bill 1285 (“SB 1285”) adds Section 23826.13 to the California Business and Professions Code, which authorizes the California Department of Alcoholic Beverage Control (“ABC”) to allocate 5 new “neighborhood-restricted special on-sale general” licenses in San Francisco. The 5 new licenses are subject to most of the same privileges and restrictions – and the same original fee of $13,800 – as an on-sale general license for a bona-fide eating place (Type 47). However, these 5 licenses differ from regular Type 47 licenses in that they are neighborhood-specific, are nontransferable, and when surrendered, revert back to the ABC for issuance to a new applicant. This means that licenses will only be available, and must remain in, the eligible neighborhoods – Bayview’s Third Street, outer Mission Street in the Excelsior, San Bruno Avenue, Ocean Avenue, Noriega Street, Taraval Street and Visitacion Valley. Licenses in the most popular restaurant hubs remain available only by purchasing an existing license, market values of which often run several hundred thousand dollars. The new licenses also do not permit the exercise of off-sale privileges, like a Type 47 does. In order to be eligible to apply for a license, SB 1285 requires a pre-application meeting, which must be conducted and verified by a local government body. This requirement includes notifying nearby residents, conducting a community meeting, outreach to certain neighborhood associations and to the San Francisco Chief of Police. The ABC will establish a priority application period in accordance with Cal. Bus. & Prof. Code § 23961, and if more than 5 applications are received, they will hold a lottery for eligible applicants. AB 1322 - Beauty Salons and Barber Shops Assembly Bill 1322 (“AB 1322”) permits beauty salons and barber shops to serve wine and beer without a license provided there is no extra charge for the service. The service can only be offered during business hours and no later than 10:00 p.m., and the amount of beer and wine cannot exceed 12 ounces and 6 ounces per customer, respectively. Further, the salon or barber shop providing the service must be in good standing with the State Board of Barbering and Cosmetology. Prior to AB 1322, the exception allowing unlicensed service of alcohol by a business to its customers only existed for limousines and hot air balloon ride services. (Cal. Bus. & Prof. Code § 23399.5) AB 1554 - Ban on Powdered Alcohol Assembly Bill 1554 makes it a crime to purchase or possess powered alcohol. The bill defines powdered alcohol as “an alcohol prepared or sold in a powder or crystalline form that is used for human consumption in that form or reconstituted as an alcoholic beverage when mixed with water or any other liquid.” The definition makes clear that vaporized alcohol (which is already illegal in California) is not powdered alcohol. The bill also prohibits the manufacture, distribution and sale of powered alcohol. An individual caught making, selling or using powered alcohol is guilty of an infraction and must pay a $125 fine. (Cal. Bus. & Prof. Code §§ 23794 and 25623) For more information about the recent changes to California’s alcohol laws, contact an attorney at Strike & Techel.

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Supplier-Funded Instant Rebate Coupons No Longer Permitted on Wine in California

Last week, California Governor Jerry Brown signed Senate Bill 1032 (“SB 1032”) into law. SB 1032 amends Section 25600.3 of the California Business and Professions Code, and extends the recent prohibition on supplier-funded beer, cider and perry coupons to wine. You can read more about the prohibition of supplier-funded beer coupons in our prior blog post here. What is permitted post-SB 1032? The law still permits discounts on alcoholic beverages in other forms, including mail-in rebates by wine and beer suppliers, all retailer-funded coupons, and instant coupons funded by distilled spirits suppliers for distilled spirits (provided the coupon does not also discount beer or wine). Furthermore, beer manufacturers and winegrowers can still offer instant rebates at their premises, and can offer rebates direct to consumer on internet sales. When are the changes effective? The new law takes effect on January 1, 2017. Supplier-funded wine coupons can continue to be accepted at retail until December 31, 2016, and suppliers will be able to continue redeeming coupons accepted by a retailer until March 31, 2017. Who can do what?

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Suppliers Now Allowed to Use Social Media to Support Certain Charity Events Sponsored by Retailers

Effective January 1, 2016, the California ABC Act contains a new section that loosens the restrictions suppliers face when mentioning a retailer in a social media post. Newly added Business and Professions Code § 23355.3 is aimed at clarifying how suppliers and retailers can co-sponsor nonprofit events. It was drafted, in part, as a response to the backlash that occurred after the ABC filed accusations against several wineries for advertising sponsorship of the “Save Mart Grape Escape” charity fundraising event in 2014. In that instance, several wineries posted or tweeted their support and sponsorship of the event on social media. The ABC reasoned that the suppliers were impermissibly advertising for Save Mart, a retailer, even though the event was held under a nonprofit permit issued to a bona fide nonprofit organization. The ABC alleged that by posting or tweeting about the event, the suppliers were giving a thing of value to the retailer, a practice that has long been considered a violation of California’s tied house restrictions. California law has long permitted supplier licensees to sponsor nonprofit events if the nonprofit gets an event license, and the new law does not fundamentally change that. However, the new section clarifies that a supplier may advertise sponsorship or participation in such events even if a retailer is also a named sponsor of the event. Payments or other consideration to the retailer are still considered a thing of value, and are not allowed, but social media postings no longer fall under that broad category. There are restrictions on what the supplier is permitted to post about the retailer; posts cannot contain the retail price of alcoholic beverages and cannot promote or advertise for the retail licensee beyond mentioning sponsorship or participation in the event. The supplier can share a retailer’s advertisement for the event on social media, but the supplier is not permitted to pay or reimburse the retailer for any advertisement and cannot demand exclusivity of its products at the event. In short, the new section will allow exactly the type of supplier social media support that occurred in the Save Mart Grape Escape situation.

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New California Law Creates License for Craft Distilleries, Updates Spirits Tasting Rules

On October 8, 2015, California Governor Brown signed the Craft Distilleries Act of 2015 into law, which creates a new license for craft distilleries. AB 1295 is a step forward for craft spirits producers, who will no longer be subject to the same strict restrictions that apply to traditional Distilled Spirits Manufacturers (Type 4 licensees). The new Craft Distiller’s license allows the production of up to 100,000 gallons of distilled spirits each year and also includes several other key privileges not available to larger distilleries that hold Type 4 licenses: Craft Distillers will be able to sell distilled spirits to consumers, operate restaurants from their premises, and hold interests in on-sale retail licenses. AB 1295 adds several sections to the California Alcoholic Beverage Control Act, including Business and Professions Code Sections 23500 through 23508. Those sections include the following privileges for Craft Distillers:

  • Manufacture of up to 100,000 gallons of distilled spirits each fiscal year (July 1 – June 30), excluding any brandy the licensee may have produced under a Brandy Manufacturer license. Licensees can also package, rectify, mix, flavor, color, label, and export distilled spirits manufactured by the licensee.
  • Sale of up to 2.25 liters of its distilled spirits per consumer, per day, in conjunction with instructional tastings held on its licensed premises.
  • Operation of a bona fide eating place on its licensed premises or a location contiguous to its premises, from which the licensee may sell beer, wine, and distilled spirits.
  • May hold an interest in up to two California on-sale licenses, provided certain conditions are met.
  • Cannot be issued to anyone who manufactures or has manufactured for him over 100,000 gallons of distilled spirits, whether inside or outside California, excluding any brandy the licensee may have produced under a Brandy Manufacturer license.
The new bill also amends Business and Professions Code Section 23363.1 to allow Craft Distillers to conduct distilled spirits tastings either: a) off their licensed premises at a nonprofit event held under a nonprofit permit; or, b) at their licensed premises under specific conditions. The other notable change to the statute is that tastings can be provided in the form of a cocktail or mixed drink, and the sample size limitation has been changed to one and one-half ounces maximum per consumer per day. Those changes apply to both Craft Distillers and Distilled Spirits Manufacturers. The new laws take effect January 1, 2016. Contact one of the attorneys at Strike & Techel if you have any questions about distillery licenses in California or elsewhere. Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 • All Rights Reserved •

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California Brewpub Licenses: What You Need to Know

Craft beer continues to be all the rage in California and across the country. With the increase in demand for local craft beers, we’ve been getting a lot of questions about how to get licensed as a brewery in California. The California Department of Alcoholic Beverage Control (“ABC”) issues three primary license types that permit beer production, including Beer Manufacturer licenses (Type 1), Small Beer Manufacturer licenses (Type 23) and the increasingly popular On-Sale General Brewpub license (Type 75). The license privileges of each type of brewery license vary, and the brewpub license is a good choice for brewers that primarily want to operate a brewpub or microbrewery restaurant rather than sell their beers for consumers to drink off the brewery’s premises. A Type 75 brewpub license authorizes the sale of beer, wine and distilled spirits for consumption at a bona fide eating place, which essentially requires that the facility be a restaurant with its own kitchen that serves meals. The ability to sell distilled spirits as a brewpub is a privilege that many find attractive in deciding between brewery licenses. Type 1 and Type 23 breweries may, but are not required to, operate bona fide eating places, but they are limited to beer and wine, and cannot sell distilled spirits. Additionally, beer, wine, and distilled spirits restaurant licenses (i.e., Type 47 On-Sale General for Bona Fide Public Eating Place) are often extremely expensive as the number of licenses issued is limited per county based on population. There is no cap on the number of Type 75 licenses that can be issued, so the Type 75 license can be an attractive option for businesses that want to sell distilled spirits, although all Type 75 licensees must meet certain brewing requirements. Brewpubs must produce at least 100 barrels of beer per year and can produce no more than 5,000 barrels of beer per year. That production cap is substantially lower than the production allowances for Small Beer Manufacturers (less than 60,000 barrels per year) and Beer Manufacturers (60,000 barrels per year or more). Additionally, a Type 75 brewpub premises must have brewing equipment that has at least seven-barrel brewing capacity. The ABC has recently been looking into the brewing equipment of Type 75 licensees and enforcing against brewpubs that aren’t actually brewing beer or don’t have the requisite brewing capacity. Other key features of Type 75 brewpub licenses include the following: • Cannot make sales from the brewpub premises for off-premises consumption. This means that a brewpub cannot sell bottles, cans, growlers or other containers for consumption away from the brewpub. • Can sell beer produced by the brewpub to California licensed wholesalers. • Must buy all wine, distilled spirits, and beer not produced by the brewpub from a licensed wholesaler or winegrower. Note that brewpubs cannot buy or sell beer or other alcoholic beverages from other brewpubs or retailers. The initial fee for a brewpub license is currently $12,000, which is more expensive than most California license types. The annual fee is determined by the population where the brewpub is located, and varies between approximately $500 and $1,000 per year. Additionally, local rules where the brewpub is located may require additional permitting or other approvals before the brewpub can operate. Lastly, all breweries, including brewpubs, must obtain a brewery basic permit from the Alcohol and Tobacco Tax and Trade bureau, the federal agency that regulates alcoholic beverages. There is no fee for the federal permit, but a bond is required. Contact one of the attorneys at Strike & Techel if you have any questions about starting a brewery!

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ABC VIOLATION ROUND-UP: Purchase by Minor Decoy

The California ABC actively enforces the alcoholic beverage laws of the state. We’ll be posting a series of “ABC Violation Round-Up” items discussing some of the violations we have seen in recent enforcement actions. This week…. sale to a minor decoy. The Violation: You cannot sell or serve alcohol to anyone under 21 years of age in California. The ABC is constantly visiting retailers to make sure this law is enforced. Violations of the law can occur two ways; via a law enforcement decoy sting or via sale to a “true” minor. This post covers law enforcement decoy stings, which are run by the ABC or by a local law enforcement agency. In a decoy sting, a minor (19 years of age or younger) will visit your premise under law enforcement supervision and attempt to purchase alcohol. We will cover sales to a “true” minor in a later post. How to Avoid It: Identification must be requested if there is any question regarding the age of a person requesting access to alcohol. Licensees and their staff must be trained in proper review of identification. Any identification presented must be bona fide, and must match the person presenting it. Minor decoys are required to answer questions about their age truthfully, so if you ask a decoy “Are you 21 or over?” they are obliged to say no. Decoys are also required to be 19 years of age or younger, and are required to present their true identification or none at all. It is common for a decoy to confidently present their true ID and trip-up a server who is not careful. Servers must be trained to check the red “Age 21 in 20__” indicator on every ID presented to them. Recently, ABC stings at on-sale premises have involved two decoys working in tandem. Statute: California Business and Professions Code § 25658, ABC Rule 141 Standard Penalty: 15 day suspension for 1st offense, 25 day suspension for 2nd offense within 36 months, license revocation for 3rd offense within 36 months. Fines can typically be paid for the first two “strikes” in lieu of serving a suspension. The fine for the first strike is capped at $3,000, and raised to $20,000 for the second strike. Imbiblog is published for general informational purposes only and is not intended as legal advice.

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Strike & Techel: The Movie

Before our blog delves into more serious issues related to alcoholic beverages, we thought we’d start with something fun. Please enjoy our movie!

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